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UK employment rises but wages grow by less than inflation

Paloma Kubiak
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Paloma Kubiak

The number of people in work rose in the three months to May 2017 but after inflation, wages are down 0.7% compared with a year earlier.

The employment rate for the period was 74.9%, the highest since comparable records began in 1971, according to the Office for National Statistics (ONS).

There were 32.01 million people in work during March to May 2017, 175,000 more than the preceding three months and 324,000 more than recorded in the previous year. The rise has been fuelled by more women in full-time employment as fewer retire between the ages of 60 and 65.

Unemployment over the three months was 4.5% down from 4.9% recorded a year earlier, with a total of 1.49 million people not in work. This level is the lowest since 1975 and is 64,000 fewer than for the three months to February 2017. It’s also 152,000 fewer than for a year earlier.

While the labour market data shows positive signs, average weekly earnings for employees in real terms (adjusted for inflation) fell by 0.7% (including bonuses) and 0.5% excluding bonuses.

Where the figures aren’t adjusted for inflation, employees’ wages increased 1.8% (including bonuses) and by 2% excluding bonuses compared to a year earlier.

The average total pay for employees (including bonuses) was £487 a week which is £35 lower than the pre-downturn peak of £522 recorded for February 2008.

‘Low unemployment should lead to upward pressure on wages’

Ben Brettell, senior economist at Hargreaves Lansdown, said the squeeze on household finances continues: “Shrinking real pay doesn’t bode well for economic growth – the UK economy is heavily reliant on the consumer and falling real incomes should eventually translate into lower retail sales. Respected think-tank NIESR said last week it expects relatively anaemic growth of 0.3% in the second quarter – barely higher than the disappointing 0.2% registered in Q1.

“The UK labour market is becoming increasingly difficult to interpret. Conventional economic theory suggests that low unemployment should ultimately lead to upward pressure on wages – but there has been scant evidence of this during the latest squeeze on household finances. Perhaps workers simply don’t have the bargaining power they once did.

“Weak pay growth makes it increasingly likely interest rates will be held at 0.25% for now – a view reinforced yesterday by BoE deputy governor Ben Broadbent, who declared he isn’t yet ready to vote for higher rates. His comments sent sterling tumbling to an eight-month low against the euro.”